Following the enactment of the second Finance Act in 2010 in July, August has been a bit quieter. These are our SME Tax highlights from the past month.
The PAYE overpayment saga
HMRC's new PAYE computer is part way through matching some 20 million of unmatched PAYE records. To date it calculates that some 6 million people have either underpaid nearly £3 billion in tax, or overpaid some £1.5 billion. It is windfall time for some though: HMRC are writing off balances under £3000.
See The advisers' guide to the PAYE underpayment scandal
Ongoing consultations
The new Office of Tax Simplification is currently collecting its thoughts on reforming IR35.
In the meantime, by far the most interesting consultations currently in the public domain cover:
Associated companies
HMRC have long been very edgy about reforming the associated company rules, but after years of pressure, it finally launched a consultation and some draft provisions last Spring.
The initial plan was to do away with the old mechanical tests of control and introduce a test based on the presence of both “substantial commercial interdependence” between companies combined with what are termed “relevant tax planning arrangements”. Basically, this is the way that the current rules work for testing whether companies controlled by business partners are associated. It would mean that companies would only be associated if they have a more cosy relationship than any normal arm’s length agreement and there is evidence to show that the set up is designed to avoid tax by maximising small company tax relief.
Unfortunately, despite the fact that the whole point of reform in this area is to try and simplify the rules, HMRC has changed its views and it seems that all will hang on a substantial commercial interdependence test (this term will be described in the legislation) , so the tax avoidance motive is not present. So it seems that we are back to some type of mechanical test after all. However, all may not be lost yet (which is why I am not yet updating our associated company checklists) as HMRC is still consulting on the changes. New rules are due to come in for April 2011.
Pensions – this consultation scaps the ideas moted in last autumn's consultation. It examines methods of reducing the amount of tax relief that a higher earner obtains when he makes pensions contributions. New measures expected in 2011/12, further reading see Pensions: tax planning guides
Furnished Holiday Lettings – the consultation considers whether to extend the qualifying letting period, and what to do about losses and capital allowances when a business qualifies one year and not the next. New measures expected in 2011/12, for a full commentary (and all the usual planning points) see Furnished Holiday Lettings
Nichola adds, In passing, I am assisting the Assocation of Taxation Technicians (ATT) pen a response on this consultation, so if you have any points to make and don't want to write a full response yourself please let me know.
NI Holiday for new employers (outside London and the South-East)
From 6 September 2010 new business set up outside London, the South East and East of England will be eligible for a holiday worth up to £50,000. See NI holiday for new business starts today
We will follow this up shortly more detailed guidance, as it seems that there is ample room to abuse this by basing your HQ outside the home counties.
CGT changes in the Finance (No. 2) Act 2010
Aside from increasing the Lifetime Allowance for Capital Gains Tax Entrepreneurs' Relief from 23 June 2010, the Act also resticts the availability of the relief so that it no longer applies to gains deferred using the QCBs or EIS and adds some transitional provisions. For more information see Selling the business: deferred consideration and earn outs
Legal Professional Privilege
At last we can see what the ICAEW is doing with our subscription monies!
Legal Professional Privilege is a human right, however it only applies to advice given by lawyers. This is despite the fact that other professionals, such as chartered accountants often give out similar advice. The Institute of Chartered Accountants in England and Wales (ICAEW), who are also supported by the Chartered Institute of Taxation (CIOT) have intervened in a case at the Court of Appeal (R on the application of Prudential Plc & Anor v Special Commissioners of Income Tax and Anor [2009] EWHC 2494) – the Prudential case, to see whether there should be a change in the law to ensure that people who obtain tax advice from chartered accountants are protected by LPP, as they would be if they received the same advice from lawyers.
Judgment is expected in October.
VAT E-fling
All businesses who turnover less than £100,000 will be required to file online from 2012.
New businesses and those with a turnover of more than £100,000 are already required to file online.
We say: “This service works extremely well, and it is very easy to do (once you have set it up).”
CT online: warning from the ICAEW
HMRC’s online CT software cannot cope with the April 2010 increase in the Annual Investment Allowance to £100,000. The situation will only affect companies with year ends ending in and after April 2010 and will be resolved by October.
Residency case goes to the Supreme court
Robert Gaines-Cooper moved to the Seychelles and thought that he had left the UK and was non-resident. The Court held that he had not severed his family ties in the UK, and so remained resident here. He had followed HMRC’s guidance in booklet IR20, the court ruled that HMRC’s guidance is not the law.
He is now granted leave to appeal to the Supreme Court and we all expect conclusive guidance on what is meant by “leaving the UK”.
In passing, the Gaines-Cooper case that this should have no effect on those who go to take up full time employment abroad, they are normally treated as non-resident from the date of departure, regardless of family ties. The situation is more complex when you are your own boss. See Residency: coming to the UK for a discussion of the issues.
Tax relief on medic’s training
The Court of Appeal has ruled that an NHS employee can claim tax relief on the cost of training that she was obliged to pay for personally under the terms of her employment contract. The judgment still means that most employees who pay their own training fees will not qualify for tax relief, if you have clients in NHS training posts, start writing to them now.
We have summarised the position for employer and employee in Training and course fees.
64-8s
HMRC has updated its guidance for advisers and turnaround times.
Expect:
- 2 weeks for self-assessment, but 8 weeks for new SA or self-employment registrations.
- 6 weeks for other 64-8 applications.
Manual forms must still be sent where the taxpayer does not have a UTR, so you might want to consider a local advertising campaign to ensure that prospective new clients come and see you before January!
64-8 top tips (these are from the ICAEW's Taxline:
- Do not send a covering letter with a 64-8.
- If sending in several forms for one client send together
- Avoid staples.
- Send in the latest version of the form.
- See http://www.hmrc.gov.uk/agents/authorisation.htm
NEST: the 2012 the workers pension
The National Employment Savings Trust (NEST) pension scheme is due to be launched in 2012 in order to help workers with no pension provision, particularly the lower paid. Employers will need to automatically enrol their eligible workers into a qualifying pension scheme and make contributions to it. Workers will be able to opt-out of their employer's scheme if they choose not to participate.
Align NEST with NIC and incorporate waiting periods, says ICAEW
The ICAEW recommends that two major changes should be made to the workplace pension reforms that are scheduled to come on stream in 2012, namely:
- automatic enrolment of employees should take place after a waiting period rather than on the commencement of employment, and
- the contributions should be aligned with NIC.
Both of these measures, says the ICAEW would dramatically reduce the administrative cost for employers, which perversely could otherwise exceed the cost of the contributions themselves.
Revenue watch
In Revenue & Customs Brief 36/10 HMRC publishes a full list of its penalties and compliance factsheets:
CC/FS1 - General Information
CC/FS2 - Request for information and documents
CC/FS3 - Visits – Pre-arranged
CC/FS4 - Visits – Unannounced
CC/FS5 - Visits – Unannounced – Tribunal approval
CC/FS6 - What happens when we find something wrong
CC/FS7 - Penalties for errors in returns or documents
CC/FS8(T) - Help and advice (for TEEL cases only)
CC/FS9 - Human Rights Act
CC/FS10 - Suspending penalties for careless errors in returns or documents
CC/FS11 - Information about the failure to notify penalty
CC/FS12 - Information about VAT and Excise wrongdoing penalties
CC/FS13 - Publishing details of deliberate defaulters
HMRC1 - HMRC decisions – what to do if you disagree
The fact sheets are HMRC's interpretation of the rules and they will send them to your clients, so it is worth reading through them to update yourself.
Telling HMRC about a change of name or address by email
Some (but not all) individuals can advise HMRC of changes via a new email service.
HMRC will update a change of name and address in the following services:
- PAYE (Pay As You Earn)
- National Insurance
- Self Assessment
- Construction Industry Scheme
- Child Benefit
- Child Trust Fund (you will need to update your account provider separately)
- Student loan
- Tax credits
In addition any change will also be notified to:
- the Government Gateway
- the Pensions service
NOTE: this DOES NOT APPLY If you're registered for Self Assessment Online, you're leaving the UK, you would like to change your business name or address or you have previously been given specific instructions about contacting HM Revenue & Customs (HMRC) you'll need to use a different method.
Reporting changes to HMRC – businesses
We add this for amusement factor, because notification is done is different ways depending on the type of tax. Follow the link for the options: http://www.hmrc.gov.uk/report-changes/business.htm
Paid subscribers special CPD
Confused about what is being enacted where and when? Try our Finance Acts 2010: tax planner this plots out what is in store for 2010/11 and 2011/12.
